Japan, Australia signal approval of China-based AIIB

TOKYO/SYDNEY, (Reuters) - Japan signaled cautious approval of the China-led Asian Infrastructure Investment Bank (AIIB) on Friday and said for the first time that, if conditions were met, it could join the institution that the United States has warned against.

Australian Treasurer Joe Hockey said there was "a lot of merit" in the bank and the Sydney Morning Herald newspaper reported that Canberra could formally decide to sign up when the full cabinet meets on Monday.

Japan, Australia and the South Korea, all major U.S. allies, are the notable regional absentees from the AIIB. The United States, worried about China's growing diplomatic clout, has questioned whether the AIIB will have sufficient standards of governance and environmental and social safeguards.

But after Britain broke ranks with Western nations and said earlier this month that it would join the AIIB, other major EU members have followed suit.

Australia now appears close to joining, although no formal decision has been made, and South Korea may be as well.

Japanese Finance Minister Taro Aso said Tokyo could consider joining the China-led bank if it could guarantee a credible mechanism for providing loans.

"We have been asking to ensure debt sustainability taking into account its impact on environment and society," he told reporters after a cabinet meeting.

"We could (consider to participate) if these issues are guaranteed. There could be a chance that we would go inside and discuss. But so far we have not heard any responses."

It was a surprising comment from Japan.

Although China and Japan, the world's second- and third-largest economies, have deep trade and business relations, their diplomatic ties are tense over a territorial dispute and they compete for influence across Asia.

The AIIB could emerge as a rival to the Asian Development Bank (ADB), the Manila-based regional financial institution that Japan dominates along with the United States. By custom, the ADB is headed by a former senior official from the Bank of Japan or the country's finance ministry.

BOJ Governor Haruhiko Kuroda, former ADB president and vice finance minister, responded cautiously when asked about the AIIB.

"There are huge needs, demands for infrastructure investment in Asia," he said at a news conference on Friday.

"On the other hand, the World Bank and ADB have been helping developing countries in Asia to improve infrastructure for the last 50 years," Kuroda said. "They have accumulated know-how and experience ... That may be the most I can say.”

OUR NEIGHBORHOOD

Australia's Hockey said no final decision had been made on Australia's involvement but the matter had been under careful consideration.

"More than 30 countries have already signed up. This is going to operate in our region, in our neighborhood," he told a radio station in Brisbane.

"There is a lot of merit in it, but we want to make sure there are proper governance procedures. That there's transparency, that no one country is able to control the entity."

The Sydney Morning Herald said Canberra could invest as much as A$3 billion ($2.3 billion) in the bank and that the National Security Committee has cleared the way for the investment.

South Korean government officials denied a newspaper report that Seoul had decided to join in exchange for a five percent stake in the AIIB and the position of deputy chief.

The finance ministry said in a statement South Korea will make a decision on whether to join the bank "through close consultation with major countries and after considering various factors such as economic advantages and disadvantages".

Hockey said joining the AIIB would not affect Australia's close relationship with the United States and also referred to the gains that Australian companies could reap.

"The United States understands that this is a bank that's going to be operating in our region. It's going to be using contractors in our region. We want Australian contractors involved, we want work for Australians out of this bank," he said.

"And because it's operating in our region, in our neighborhood, it is important that Australia fully understand and look at participating in this Bank."